Personal Loan Balance Transfer Explained With Example

                                                 

Personal loan balance transfer is a financial product that allows borrowers to transfer their outstanding personal loan amount from one lender to another, at a lower interest rate. This can help borrowers save money on interest payments and reduce their monthly loan EMIs. In this article, we will explain how personal loan balance transfer works and provide an example to illustrate the benefits of this financial product.

Understanding Personal Loan Balance Transfer

When a borrower takes out a personal loan, he or she is often required to pay a high interest rate that is set by the lender. This interest rate can be especially high if the borrower has a poor credit score or has limited options for borrowing.

If the borrower finds that he or she is struggling to make ends meet due to high monthly loan EMIs, a personal loan balance transfer can help. In this process, the borrower transfers the outstanding loan amount to a new lender who offers a lower interest rate, and pays off the original lender.

The new lender will take care of the loan repayment to the original lender and the borrower is required to repay the loan EMIs to the new lender. This allows the borrower to save money on interest payments and reduce his or her monthly loan EMIs.

Benefits Of Personal Loan Balance Transfer

The primary benefit of personal loan balance transfer is that the borrower can save money on interest payments and reduce monthly loan EMIs. This can help the borrower better manage his or her finances and avoid falling into debt.

For example, let's say a borrower has taken out a personal loan of Rs. 5 lakh for a term of five years at an interest rate of 15% per annum. This would result in a monthly loan EMI of Rs. 11,895. Over the course of the loan term, the borrower would end up paying a total of Rs. 7,13,720 in loan repayments, including interest payments.

However, if the borrower decides to transfer the outstanding loan amount to a new lender who offers a lower interest rate of 10% per annum, the monthly loan EMI would reduce to Rs. 10,758. Over the course of the loan term, the borrower would end up paying a total of Rs. 6,45,480 in loan repayments, including interest payments. This means that the borrower would save a total of Rs. 68,240 in loan repayments, just by transferring the outstanding loan amount to a new lender.

Factors To Consider Before Opting For Personal Loan Balance Transfer

Before opting for personal loan balance transfer, there are several factors that borrowers need to consider. These factors can include the following:

- Loan tenure: Borrowers need to consider the remaining loan tenure before opting for balance transfer. If the borrower has already paid a significant amount of the loan, it may not make sense to transfer the loan balance as it may result in additional charges and fees.

- Credit score: Borrowers with a low credit score may have limited options for balance transfer. Lenders usually require borrowers to have a good credit score in order to qualify for a balance transfer.

- Processing fee and other charges: Borrowers need to consider the processing fee and other charges that may be applicable when opting for balance transfer. These charges can include prepayment charges, foreclosure charges, and service tax among others.

- New interest rate: Borrowers need to compare the new interest rate offered by the new lender with the original interest rate. Just because the new interest rate is lower, it may not be wise to opt for a balance transfer.

Conclusion

Personal loan balance transfer can be a great financial product for borrowers who are struggling with high interest rates and monthly loan EMIs. By transferring the outstanding loan amount to a new lender who offers a lower interest rate, borrowers can save money on interest payments and reduce their monthly loan EMIs. However, borrowers need to consider several factors before opting for balance transfer, including loan tenure, credit score, processing fee and other charges, and the new interest rate offered by the new lender. By carefully assessing these factors, borrowers can make an informed decision and opt for balance transfer that aligns with their financial goals and objectives.